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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 31, 2012 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of “a+” of Farmers Mutual Hail Insurance Company of Iowa (FMH). The outlook for both ratings is stable. Concurrently, A.M. Best has withdrawn the FSR of A (Excellent) and ICR of “a+” of FMH’s subsidiary, Farmers Union Co-Operative Insurance Company, Inc. (Farmers Union). Both companies are domiciled in Des Moines, IA.
The ratings of FMH reflect its excellent capitalization, historically solid operating performance, strong agency relationships and the benefits derived from its market presence within the crop/hail and multiple peril crop insurance (MPCI) sector. The ratings also recognize the added balance sheet protection provided by an aggregate stop loss reinsurance treaty, which minimizes the potential impact from severe underwriting losses, and management’s knowledge and expertise in its highly specialized lines of business.
These positive rating factors are somewhat offset by the operational risk that changes in the agricultural marketplace will hinder execution of FMH’s business plan or that government changes in the agricultural crop insurance program will run counter to the company’s business plan; reliance on reinsurance; and potential for underwriting volatility with continued exposure to weather-related catastrophic events.
Factors that could lead to rating upgrades for FMH include a continued strong operating performance that is better than the industry composite. The rating outlook could be lowered if operating performance falls markedly short of A.M. Best’s expectations. The stable outlook recognizes A.M. Best’s expectation that FMH will sustain strong underwriting and operating results over the near term, and capitalization will remain well supportive of its ratings.
The withdrawal of the ratings of Farmers Union reflect the novation of its direct insurance policies to its parent, FMH, and the simultaneous discontinuance of the 100% reinsurance contract with the parent, both effective on October 1, 2011. As a result, Farmers Union is now a shell company. There was no net effect on either company’s financial statements as there had been a 100% reinsurance treaty in effect and the transaction was accounted for as a loss portfolio transfer.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Risk Management and the Rating Process for Insurance Companies”; and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.